Correlation Between Anglo American and United Tractors

Can any of the company-specific risk be diversified away by investing in both Anglo American and United Tractors at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Anglo American and United Tractors into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Anglo American plc and United Tractors Tbk, you can compare the effects of market volatilities on Anglo American and United Tractors and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Anglo American with a short position of United Tractors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anglo American and United Tractors.

Diversification Opportunities for Anglo American and United Tractors

0.28

Correlation Coefficient

Anglo American  United Tractors

Modest diversification

The 3 months correlation between Anglo and United is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Anglo American plc and United Tractors Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Tractors Tbk and Anglo American is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Anglo American plc are associated (or correlated) with United Tractors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Tractors Tbk has no effect on the direction of Anglo American i.e., Anglo American and United Tractors go up and down completely randomly.

Pair Corralation between Anglo American and United Tractors

Assuming the 90 days horizon Anglo American plc is expected to generate 1.63 times more return on investment than United Tractors. However, Anglo American is 1.63 times more volatile than United Tractors Tbk. It trades about 0.04 of its potential returns per unit of risk. United Tractors Tbk is currently generating about -0.01 per unit of risk. If you would invest  2,851  in Anglo American plc on September 3, 2024 and sell it today you would earn a total of  154.00  from holding Anglo American plc or generate 5.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Anglo American plc  vs.  United Tractors Tbk

Anglo American plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, Anglo American may actually be approaching a critical reversion point that can send shares even higher in January 2025.

United Tractors Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Tractors Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, United Tractors is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Anglo American and United Tractors

The main advantage of trading using opposite Anglo American and United Tractors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Anglo American position performs unexpectedly, United Tractors can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in United Tractors will offset losses from the drop in United Tractors' long position.

The idea behind Anglo American plc and United Tractors Tbk pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.